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Uranium Week: Spot Price Slide Relentless

Commodities | Apr 29 2014

By Greg Peel

The government of Belarus has issued a construction licence for the country’s first commercial nuclear plant.

That about sums up the good news.

It is worth noting that prior to about 2005, the uranium spot market was a minor distraction, existing only for the purpose of producers to make up term contract shortfalls or reduce inventories, with traders standing in as intermediaries between producers and utilities. The real uranium market was in term delivery contracts. But then as the China super-cycle became apparent, speculators stampeded into the uranium spot market.

The result was a subsequent bubble to 2007 and a spot price of nearly US$140/lb before a 2008 bust back down to US$50/lb. Utilities rested on their stockpiles during the madness. Speculators were severely burned but tried their luck again ahead the 2011 tsunami, before being burned again. The final throw of the dice was prompted late in 2013 when it appeared Japan was about to announce reactor restarts.

But even that didn’t work. The two big intermediary players – Goldman Sachs and Deutsche Bank – have left the market and the only speculators left still playing, it would seem, are those still caught long. Those speculators are joined by producers stuck with product in an oversupplied market. No one is buying, at least in any quantity.

Only three spot transactions were transacted last week, industry consultant TradeTech reports, at successively lower prices, for a total of 400,000lbs of U3O8 equivalent. The sellers are desperate and the buyers are ambivalent, it would seem. TradeTech’s weekly spot price indicator has fallen US$1.75 to US$30.75/lb.

If you went on holiday in 2005 and just returned, you would assume nothing much has changed in sport uranium, price or market volume wise. And perhaps that’s the way things are going to be.

The question now is as to whether the spot market will continue to have any influence over the term market, as it has this past decade, or whether utilities will just settle their future delivery requirements on independently assessed pricing. In other words, should we see the relentless decline in the uranium spot price as representing the demise of demand or the demise of the spot market itself? For we know that term market demand must soon pick up from utilities, lest they run out of fuel, and we know that there are a few currently tendering for delivery contracts without seeming in any great rush.

Why would they be? The spot price keeps falling. But TradeTech’s term price indicators are unchanged again this week at US$37.00/lb (mid) and US$50.00/lb (long).

Aside from the Belarus bombshell, the other news from last week is that Beijing has included specific nuclear (and hydro) construction projects in its most recent stimulus micro-package. Buy we know China plans to build reactors at a rollicking pace, and we know Japan will restart its first reactor before year-end, so there is not much else in the way of new news left to excite the uranium market.

At least until the last speculator has turned out the lights.

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